05TAIPEI1594

This record is a partial extract of the original cable. The full text of the original cable is not available.
040309Z Apr 05

CONFIDENTIAL SECTION 01 OF 02 TAIPEI 001594
SIPDIS

DEPT FOR EAP/TC

DEPT PLEASE PASS AIT/W, USTR

E.O. 12958: DECL : 03/31/2015
TAGS: ETRD ECON EINV TW CH

SUBJECT: CROSS-STRAIT TRADE - TAIWAN'S SURPLUS GROWS,

INFLUENCE SHRINKS

REF: TAIPEI 1191

Classified By: AIT Director Douglas H. Paal, Reason 1.5 b
Summary

1.1. (C) Taiwan's exports to the PRC grew by 2 7.2 percent in
2004 as its imports from the Mainland grew even more rapidly
at 52.2 percent. Components shipped to Taiwan firms
assembling electronic consumer goods in the PRC dominated
Taiwan's exports at 57 percent, but similar products also
made up the majority of Taiwan's PRC imports. The PRC's
share of Taiwan's total exports rose again but Taiwan's
share of PRC imports fell. It appears likely that South
Korea will overtake Taiwan as the number two source of PRC
imports in 2005. These trends could facilitate the PRC's
ability to use economic policy to apply pressure to Taiwan's
government. End summary.

Exports Rising, Imports Rising Faster

12. (U) Taiwan-PRC trade statistics for 2004 released by
Taiwan's Board of Foreign Trade (BOFT) show that trade
between Taiwan and the China grew by a record 33.1 percent,
the fastest pace since BOFT began tracking such data in
1.1993. Export growth was impressive, rising by 27.2 percent
to USD 45.0 billion. Only 1993 saw faster growth in exports
to the PRC. However, the percentage increase in imports was
even higher at 52.2 percent to USD 16.7 billion. Even as
Taiwan ' s trade surplus with the PRC continues to grow in
dollar terms, it is shrinking as a percentage of total
Taiwan-PRC trade.

Electronic Components Still Lead

13. (U) Nearly 57 percent of Taiwan's exports to the PRC
worth USD 25.4 billion consisted of electronics components
sold mainly to Taiwan firms assembling electronics consumer
goods in the PRC. According to Taiwan's Market Intelligence
Center, a high-tech industry research firm, about 73 percent
of IT equipment manufactured by Taiwan firms, including
products in which Taiwan is a world leader such as notebook
PCs, TFT-LCD monitors, switches and motherboards, were
assembled in the PRC in 2004. More surprisingly, the BOFT
statistics indicate that 54.5 percent of Taiwan's imports
from the PRC (or USD 9.1 billion) were also made up of
electronics components . PRC components exported to Taiwan
are generally produced by more labor-intensive,
less-technologically advanced means than the Taiwan
exports. The fact that these components dominate trade in
both directions indicate the complexity and high-level of
integration of high-tech industries across the Strait.

Shifting Balance

14. (U) Taiwan's dependence on the PRC as a market for
exports continued to grow. The PRC accounted for 25.8
percent of Taiwan's exports last year, compared to 24.5
percent in 2003 and 22.6 percent in 2002. If exports to
Hong Kong are included, China accounts for approximately 35
percent of Taiwan's imports. However, Taiwan's share of the
PRC’s imports dropped last year from 12.0 percent in 2003 to
11.5 percent in 2004 as South Korea’s share grew from 10.5
percent to 11.1 percent. South Korea was the third largest
source of PRC imports after Taiwan in 2004, but stands to
overtake Taiwan in 2005. Korean firms, which tend to import
Korean-produced inputs just as Taiwan firms buy Taiwan-made
components, are investing in Mainland China at a faster
pace. PRC data show that Korean firms contracted USD 13.9
billion worth of investment in the PRC in 2004, compared to
USD 9.31 billion for Taiwan firms (reported reftel). South
Korea's imports to the PRC already surpassed Taiwan's in the
first month of 2005.

Comment: Future Implications

15. (C) If these trends continue, the economies of Taiwan and
the PRC will grow more and more closely linked. Taiwan's
economy depends on the PRC not only as a production base but
increasingly as a final market for exports, and this will
continue to grow. However, the PRC's relative dependence on
Taiwan could at the same time diminish as other countries
strive to compete in the PRC market. If countries like
South Korea increasingly reduce Taiwan’s relative importance
as a source of investment and imports, the PRC will have a
freer hand to use its economic policy towards Taiwan for
political ends. These trends are likely to increase both
the PRC's ability and willingness to use economic means to
pressure Taiwan and, at the same time, diminish Taiwan's
ability to resist them. End comment.

1.6. (U) BOFT cross-Strait trade data for 1993-2004 will be
posted on the AIT intranet site at

http: //taipei . state. gov/ait_s/econ/econ_web/e condata_main.htm
PAAL